To understand how a stock market listing influences corporate policies if external financing is restricted, we examine how European public and counterfactual private firms jointly adjust their investment, financing, payout policies during the global financial crisis - when bank lending tightened. Our findings suggest that a stock market listing provides better access to external debt financing during the crisis as public firms, on average, net issue more long-term debt. Excess debt financing is, however, not allocated to investments but mostly to payouts to shareholders. Thus, a stock market listing relaxes financial constraints but induces managers to cater to shareholders during the crisis. Independent of a country's financial market structure (bank-based vs. market based) in our European firm sample, a stock market listing always provides a firm with more long-term debt during the crisis. In bank-based economies, this excess debt is mostly allocated to maintain investments while in market-based economies, inducing higher short-termist pressures, a stock-listing leads to lower investments and excess debt is used to maintain payouts.

Managerial Optimism and the Perception of Financial Constraints, with Tobias Heizer (LMU Munich), September 2015.

We find that optimistic managers are more likely to perceive financing constraints, which is a fundamental but previously untested prediction of behavioral corporate finance theory. However, this effect is statistically significant but relatively small compared to other previously identified determinants of perceived financing constraints. Moreover, the vast majority of optimistic managers actually do not perceive any financing constraints. Our findings have implications for both behavioral corporate finance and financial constraints research. We argue that previous findings relating optimism and corporate policies are probably driven by perceived financing constraints and not optimism. Apart from their potential usefulness, commonly applied financial constraint indices are likely to be biased by not accounting for managerial optimism. Our analysis is based on large survey panel data for high-level managers of 2,897 German firms for the period 1995 to 2010, which is matched with financial and non-financial firm-level information. The data enable us to implement a survey based measure of managerial optimism and to directly access the managers’ perception of financing constraints from survey answers.

The Information Content of ICO White Papers, with Alexander Schandlbauer (University of Southern Denmark and Danish Finance Institute), March 2019.

White papers are the most important source of information provided to potential ICO investors. We use textual analysis to measure the information content of white paper documents, a proxy for information asymmetry, following the methodology of Hanley and Hoberg 2010. ICO rating levels, rating disagreement, or the number of produced ratings are mostly unrelated to our information content measure, suggesting that experts are unable or unwilling to produce ratings with discriminatory power, i.e. they cannot separate "good" and "bad" ICOs. Their ratings rely on easy-to-extract publicly available information such as team size or the number of social media channels, and are thus uninformative. Potentially fraudulent ICOs rather disclose less information content in the white paper, i.e. mimic other non-fraud ICOs. Higher information content tends to result in higher short-term performance and also higher trading volume that persists beyond a time horizon where likely all relevant white paper information is fully processed into prices. Information content effects vary in "hot" and "cold" ICO market conditions.

Work in Progress

An Autopsy of a Total Stock Market Failure, with Ioannis Floros (Iowa State) and Shane Johnson (Texas A&M), March 2018.

We study a unique case in which a stock market experienced an Akerlof-type failure. We find that a relatively small fraction of ‘bad’ firms combined with high levels of asymmetric information led to a series of Akerlof-type spillovers onto good firms evident in increased trading costs and reduced liquidity and volume. As good firms suffered adverse pricing effects, they exited the market, leading to increases in the fraction of bad firms and further deterioration in the market. Regulators intervened attempting to rescue the market, but the problems accelerated; regulators ultimately shut down the market. Our work sheds light on how stock markets with low transparency and low listing requirements can fail with even just a small fraction of bad firms.

Labor unions influence firm decisions depending on how powerful they are. We develop a new measure of union power faced by individual firms. Our measure is based on annual 10-K filings and reflects the amount of union and labor related discourse in the narrative parts of the annual report. Thus, in contrast to traditional measures of unionization, the text-based measure allows researchers to analyze firm-specific, intra-industry variation of the degree of union influence over time for all listed US-firms. The measure correlates significantly with union elections, showing an increase in union influence before elections, and various other observable determinants of union power, such as industry unionization, labor laws, firm characteristics and the macroeconomic environment.

Grants and Awards

Scientific Network “Textual Analysis in Economics and Finance”, DFG

Principal Investigator, € 24,188, 2016–2017.

German Science Foundation (DFG) grant for conducting three workshops for network members and guest speakers (11 members from LMU Munich, Mannheim, HU Berlin, UT Austin, University of Hamburg, Georgia Tech, and Aalto University).

German Science Foundation (DFG) scholarship for conducting research at UCLA Anderson School of Management, project “Leverage Adjustments: Evidence from European Private Firms”. 03/2013—02/2014 (12 months).